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So, when is Time-Warner (NYSE:TWX) going to do something with AOL? That was one of several questions tackled yesterday by Bear Stearns entertainment analyst Spencer Wang in a report in which he upgrades the company’s stock to Outperform from Peer Perform.

Wang thinks the company over the next 12-18 months “will more aggressively restructure its business portfolio,” which in turn should “lead to incremental value recognition." In particular, he thinks the company could divest or restructure its publishing division; and he thinks there could be “a strategic event at AOL to unlock value.”

I’ll leave a detailed focus on the publishing side of the business to, well, some other blogger, and focus on his thoughts about AOL. He concludes that the company has three choices. It could sell AOL outright. It could spin off a minority stake, and create a structure that looks a lot like Time Warner Cable (NYSE:TWC). Or it could join forces with another larger Internet player, like Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT) or IAC/Interactive (NASDAQ:IACI).

Wang is not that keen on an outright sale, which he thinks could be tax inefficient as a cash deal, and would also cut Time Warner’s ties to AOL entirely and “effectively leave TWX with no digital platform.” He says the only reason to take this approach would be if someone over-paid (He didn’t put it quite that way, but that is the implication).

Wang isn’t that hot on a partial spin-off, either. He says that would be a “sub-optimal” strategy which would make Time-Warner a holding company and potentially hurt the company’s overall valuation.

Ergo, his preference is a combination with a strategic partner. He notes, by the way, that Google, which owns a 5% stake in AOL, has registration rights for its stake effective July 2008. As for the most likely partner, Wang backs off and says the question is “beyond the scope of this note.” Talk about pulling your punches.

Time-Warner yesterday was up 15 cents to $19.95.

TWX 1-yr chart
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Source: Will Time-Warner Move Soon To Unlock the Value of AOL?